property tax and school funding in...

Property Tax and School Funding in Utah

Prepared by the Office of Legislative Research and General Counsel for:

Bagels and Briefings

September 17, 2008

Presentation Outline

• Property tax background• Education funding and property tax

– Basic indicators of school funding needs– School funding sources– School property taxes

• Tax base• Tax rates• Tax revenues

Why Discuss Property Taxes Today?

• Property tax is on the mind of many taxpayers– Preliminary property tax statements mailed in July– Truth in taxation hearings in August– Final 2008 property tax rates set by taxing entities after truth in taxation

hearings, then verified and finalized by Tax Commission– Property tax bills mailed to property owners

• Property tax is a major school funding source– Majority of all property tax statewide goes to fund schools– General implications for overall education funding, including state budget

implications– Implications when a new school district is created

• Taxable values have increased rapidly in recent years– Rapid value increases in existing property– Significant value growth from new property development

Three Major State & Local Revenue SourcesIncome, Property, and Sales Tax

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

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Bill

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of D

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Property TaxIndividual Income TaxSales and Use Tax (State and Local)

FY 1982 to FY 2007

Data Source: Utah State Tax Commission, Property Tax Division & Economic and Statistical Unit

Property TaxA Major Component of

Utah’s State and Local Government Tax System

State individual income tax

State, local, and county sales and use tax

Local property tax

Other state taxes (severance, insurance,

cigarette, etc.)

Other local taxes (excise, franchise, and earmarked sales tax)

State corporate taxes (franchise/income, gross receipts)

State transportation taxes

Data Source: Utah State Tax Commission Annual Report, FY 2007

Why Do School Districts Impose Property Taxes?

• To understand property taxes, it is helpful to initially consider why school districts impose the property tax

• Basic answer is to provide revenue to meet school funding needs– However, different definitions of funding “needs”

exist– What are some basic measures of funding needs?

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Basic Measures of School Funding NeedsTotal Enrollment

Data Source: Utah State Office of Education, Jordan School District

Basic Measures of School Funding NeedsEnrollment Growth

Data Source: Utah State Office of Education, Jordan School District

(1,000)

(500)

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1 Year Change in Enrollment3-year-average Change in Enrollment

Other Potential Measures of School Funding Needs

• Different types of students– Special education– English language learner– Gifted and talented– Low income

• Transportation / travel distance to school• Capital infrastructure

– Buildings (age, size, functionality, etc.)– Technology

• Other

Distribution of Needs and Tax Bases

• School needs, however defined, are very unlikely to perfectly match up with the tax base of any revenue source on a geographic basis (school-by-school or district-by-district)

• Examples:– Some states allow a local income tax. The distribution of

Utah’s income tax base does not align with the distribution of the student population (one basic measure of school need).

– Utah allows school districts to impose property tax. The distribution of the property tax base is not identical to the distribution of the student population (or of the income tax base).

Funding Source ComparisonsUtah Relies Less on Local Funding Than Many States

Data Source: National Center for Education Statistics

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National ComparisonsMajor Education Revenue Sources by Region

Data Source: National Center for Education Statistics

Major Revenue Sources:– Income Taxes ($2.7 billion)– Property Taxes ($1.2 billion)– Federal Funds ($0.3 billion)– Dedicated Credits and Other ($0.06 billion)

Fiscal year 2008-09 estimates

Data source: Office of the Legislative Fiscal Analyst, Utah State Tax Commission

How is Utah Public Education Funded?

Property TaxA Major Component of Utah Public Education Funding

Data Source: Office of the Legislative Fiscal Analyst, State Office of Education

Income Tax

Other

Federal Funds

Property Tax Capital outlay,

debt service, other

Basic levy, voted leeway, board leeway

School Property Taxas a Percent of Total Property Tax

Special Districts 11%

Municipalities 15%

Counties18%

Schools 56%

Data Source: Utah State Tax Commission

School Property Tax Typesas a Percent of Total Property Tax

Special Districts

11%

Schools – Basic Levy (M&O)

12%

Schools – Other M&O

18%

Municipalities15%

Counties18% Schools – Capital Outlay /

Debt Service

24%Schools – Other

2%

Data Source: Utah State Tax Commission, State Office of Education

Property Tax Rates Vary by Location


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0.002000

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Kanab (Kane)

Woodruff(Rich)

Park City(Park City)

Circleville(Piute)

Salt Lake(Salt Lake)

Huntsville(Weber)

St. George(Washington)

Smithfield(Cache)

Bountiful(Davis)

Springville(Nebo)

Ogden(Ogden)

Tooele(Tooele)

Prop

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Rat

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School District City County Special Districts

City (School District)

School Property Taxes as a Percent of Total Property Taxes


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100%

Kanab (Kane)

Woodruff(Rich)

Park City(Park City)

Circleville(Piute)

Salt Lake(Salt Lake)

Huntsville(Weber)

St. George(Washington)

Smithfield(Cache)

Bountiful(Davis)

Springville(Nebo)

Ogden(Ogden)

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School District City County Special Districts

City (School District)

Major Revenue Sources by District

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Federal StateLocal Property Tax Other Local

Note: Data for Tintic School District unavailableData Source: Office of the Legislative Fiscal Analyst

• Some school districts have greater ability than others to generate revenue through property tax – Measures of school funding needs (such as student populations)

and property values do not align geographically • Why do school district property tax bases vary?

– Overall fair market value differences in different areas– Different mix of property types (commercial, residential, agricultural,

etc.)– Exemption / valuation differences among property types

• Primary residences receive 45% exemption, so 55% of value taxable• Greenbelt agricultural properties valued based on agricultural

production, not parcel fair market value

• Charter schools have no property tax base and cannot impose a property tax

Property Tax Bases Vary

School District Property Tax Base Composition


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Primary Residential Secondary Residential Commercial / Industrial (includes centrally assessed) Agricultural Vacant Land (non-FAA) Motor Vehicle

District A District B District CTax Base $1,000,000,000 $2,000,000,000 $5,000,000,000

Needed Revenue $1,000,000 $1,000,000 $1,000,000Rate Required to Generate Revenue 0.001000 0.000500 0.000200

Tax impact on $250,000 primary residence $138 $69 $28

Total Enrollment 8,000 4,000 2,000 Tax Base per Enrolled Student $125,000 $500,000 $2,500,000

Suppose 3 school districts each need to raise $1 million per year. The districts each have a different tax base from which to generate the $1 million. To generate the same amount of total revenue, a taxpayer with an identically valued home in District A will pay five times the amount of tax the taxpayer in District C pays, because District C is able to generate the same revenue at a lower tax rate due to its larger tax base.

Because school districts have different sized tax bases and varying numbers of students to serve, it can be difficult to directly compare taxing capacity among school districts. One method of comparison is to compute the tax base per enrolled student.

Impact of Property Tax Baseon Property Tax Revenues

$0

$250,000

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Taxable Property Tax Base per Student

Data Source: Utah State Office of Education

• Operations Levies– Basic levy– Voted leeway– Board leeway– K-3 reading

• 10% of basic levy– 10% of basic levy can be

used both for certain operations purposes (textbooks and supplies) and for capital outlay / certain debt service purposes

• Capital Outlay & Debt Service Levies– Debt service– Capital outlay– Voted capital outlay (not

currently imposed)

• Other Levies– Special transportation– Recreation– Judgment– Tort Liability– Public Law 874 - Federal

impact aid / Title VII (not currently imposed)

School District Property Tax Levies

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Total Other Tax RatesTotal Capital Outlay & Debt Service Tax RatesTotal Maintenance & Operations Tax Rates

Utah School District Property Tax RatesTax Year 2007


Property Tax Base per Student and Total Tax Rate


Current School Funding Equalization

• Basic Program – Utah’s basic program (WPU) in the operations portion of the public education

budget is often seen nationally as a model of an equitable education funding system

– Similar students meeting qualifying characteristics are funded similarly• Districts with different property tax base receive same funding level

– Different student characteristics yield different funding amounts• Kindergarten student generates less funding than other grades (0.55 WPU)• Special education student generates more funding

– Each school district imposes the basic levy – an identical tax rate statewide– Because of the equalized basic program, a large portion of the maintenance and

operations budget for schools is equalized• Other Funding

– Schools can generate additional revenue by imposing certain property tax levies authorized by statute

• Some state funding minimally equalizes certain other property tax levies (voted leeway / board leeway guarantee) but not equalized near the extent of the basic program equalization

– School Building Program• Foundation Program• Enrollment Growth Program

– Non-WPU driven programs (“below-the-line”) funded with income taxes collected on an equal basis statewide

Basic Program (WPUs),

$1,840,119,735

Voted and Board Leeway,

$359,913,204

Related to Basic Program,

$857,278,121

One-time programs and Other,

$62,820,000

Components of the Minimum School Program

Data source: Office of the Legislative Fiscal Analyst, Public Education Budget Guide

Basic Levy History

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

1980

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Year

Basi

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0.000500

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0.002500

0.003000

0.003500

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0.004500

0.005000

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Basic Levy RevenueBasic Levy Rate

Data source: Utah State Office of Education

The Weighted Pupil Unit (WPU)

• The WPU is not total per-pupil spending• The WPU is used to determine the cost of the basic

school program on a uniform basis for each student– 1 WPU = 1 student in average daily membership (ADM)– Students in Kindergarten receive 0.55 WPUs– Specific programs generate additional WPUs, generally based

on student qualifications (special education, technology education, etc.)

• The Legislature establishes the WPU value annually– FY 2009 WPU Value = $2,577– Districts and charter schools receive basic program funding

based on their total number of WPUs• Hypothetical example:

1,000 WPUs x $2,577 = $2,577,000 (total basic program funding)

How is the Basic Program Equalized?

Hypothetical District 1,000 WPUs x $2,500 per WPU = $2,500,000 basic program amount Property tax base = $1,500,000,000 x basic levy (.001500) = $2,250,000 property tax revenue $250,000 Income Tax (Uniform School Fund)

$250,000

$2,250,000 $2,500,000

Property Tax

Income Tax $250,000

Basic ProgramTwo Hypothetical School Districts

District A District BValue of WPU $2,500 $2,500WPUs 1,000 1,000 Basic program statutory entitlement $2,500,000 $2,500,000

Net Taxable Value (Property Tax Base) $1,500,000,000 $500,000,000Basic levy (Tax Rate) 0.001500 0.001500 Basic Levy Yield (Property Tax Revenue) $2,250,000 $750,000

Allocation from Uniform School Fund $250,000 $1,750,000

Income Tax

Income Tax

Property Tax

Property Tax

Basic Levy (Property Tax)

$260 Million

Statewide Basic Program Funding Sources

Uniform School Fund (Income Tax)

$1.580 Billion

Data source: Office of the Legislative Fiscal Analyst, Public Education Budget Guide

Basic Program Amounts


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Basic Program Funding Source


Property Tax

$484M

Capital Outlay Foundation Program

$24.4M ongoing

Capital Outlay Enrollment

Growth Program

$2.9M ongoing

FY 2007-08

Statewide School District Capital Outlay Funding Sources


School Funding SystemRelies on Accurate Property Valuation

• Failure to accurately and uniformly assess properties at fair market value distorts the allocation of school funds– With the truth-in-taxation certified rate process,

undervaluation of properties in one area causes higher taxes statewide through an increase in the certified rate for the basic levy

– In addition to basic program funding, other state funds are also tied to property tax values per student, including voted/board leeway guarantees and capital outlay foundation program

• So assessment practices by the Tax Commission and assessors in each county impact taxpayers statewide

Property Tax Revenue per Student

2008 General Session School Property Tax Equalization Bills

• HB 1 – Basic Program– Establishes the tax year 2008 basic levy rate (estimated)

• SB 2 – Basic Program and Property Tax Allocations for Charter Schools– Increases the value of the WPU to $2,577– Requires school districts to provide a portion of revenue from certain

property tax levies for charter school students residing within the district boundaries

• SB 48 – School District Capital Outlay – Requires a partial equalization of the capital outlay property tax levy

within Salt Lake County

Theoretical Equalization Continuum

User Fee

Only parents of children in

schools

Secondary school fees

Impact Fee

Owners of new homes

and new businesses

Currently prohibited by

statute

District-wide Equalization

All property owners within school district

Discretionary school property tax levies

(voted leeway, board leeway, debt service levy, capital outlay

levy, etc.)

County-wide Equalization

All property owners within a county

(same as district in all but 7 counties)

Partial capital outlay equalization in county of

the first class

Statewide Equalization

Taxpayers statewide

Basic levy / basic program, educator salary adjustments, state pupil

transportation funds

Who should pay for school costs?

Please feel free to contact staff with any questions:

Office of Legislative Research and General Counsel

(801) 538-1032

property tax and school funding in...

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